Managers are rethinking their tech needs as LPs demand more granular data on portfolio companies’ operating performance and fund finances.
During the Private Funds CFO New York Forum last week, 51 percent of attendees at one panel said LPs’ requests for information and ongoing reporting was becoming more detailed, and they are requesting more analysis in their reports. Another 22 percent said LPs want information in specific, standardized formats.
The CFO/CCO of a healthcare PE firm said investors are asking more sophisticated questions now.
“LPs are really digging in more to our valuation process. They want to know how we do our valuations and what methodologies we are using. It’s more than just a data dump. They want to be able to recalculate their returns,” the CFO/CCO said.
Firms with smaller compliance teams may have trouble responding to so many investors’ requests, particularly for ad hoc questions. To try to head off so many requests, some firms are making as much information available to all their investors as possible.
“We’ve had investors ask for additional information, so we decided to put it out there for everyone, so all of our LPs are on the same level,” the CFO/CCO said. “Technology can help you gather and distribute the data, but with so many LP requests it’s just not practical, frankly. So, it’s easier to get ahead of it but making the information available that you are most often getting requests for.”
Besides reporting as much information as possible, one fund admin exec said he is working with clients to standardize their reporting so all LPs get the same information at the same time.
]The CFO of one large PE and private credit shop said she prepares reports as if presenting to multiple constituencies: LPs, the investment team and the IR team. Each group needs different types of data reported from the firm’s platform. However, because the different platforms do not talk to each other, reports may require data to be generated manually.
“While we’ve standardized data on our different platforms, and that has made some reporting much easier, we haven’t been able to integrate the different platforms to talk to each other. There are different software programs that are optimized to serve different needs, but they don’t talk to each other, and that’s what we’re searching for now,” the CFO said.
The COO/CFO of a venture capital firm agreed that firms need platforms that can talk to each other and aggregate data from different areas of the firm.
“We’re trying to find that application that sits on top of our different platforms to aggregate across fund accounting, deal information or management company information. We have systems that solve every reporting problem in different areas across the firm, but we’re searching for the tool that is going to bring that all together, whether it’s for forecasting, budgeting or just general reporting of returns,” she said.
“We’re trying to find a system that can take us out of Excel and make the reporting function much more automated and integrated with our system.”
Issuing accurate and timely reports as the volume of data keeps increasing is no small challenge, and the difficulty is compounded by the fact that data is coming from different systems and going out to more LPs. More PE firms are turning to AI for fast and accurate extraction of data from documents, such as quarterly reports and financial statements.
The CFO/CCO said his firm has been looking at how AI can assist the firm and its clients.
“I think AI is going to be a big part of data gathering and sorting on our end, so more information can be readily available for our investors. I think data reporting will be more interactive for the LPs, and they will use it to look at our portfolio companies and find out as much information as they want and communicate with us. I think AI will also be very helpful in scheduling investments and creating better search tools and more interactive reports. It’s going to be an interesting next five years as GPs start taking advantage of more opportunities using AI.”
Reporting may be more interactive and efficient using AI, but the VC CFO/COO said that at the moment it is mainly younger employees who are excited by AI.
“The younger generation are able to do some much more with AI. They are lobbying for the technology to be used more to build the business to meet their current and future data needs, and the needs of the LPs. It’s a continuously shifting landscape and we’re seeing a push to stay on top of it to try to improve things,” she said.